Last weekend, the Reserve Bank of India (RBI) and the Central Bank of United Arab Emirates (CBUAE) signed two memorandums of understanding. The first MoU was for establishing a framework to promote the use of local currencies, i.e., the Indian rupee (INR) and the UAE dirham (AED) for cross-border transactions. The second MoU was for cooperating on interlinking their payment and messaging systems. Both MoUs are a step forward towards internationalising the INR and the Indian payment system.
The supremacy of the US dollar has been questioned and attempts have been made to challenge it. Major European countries gave up their currency to adopt the euro as a single currency. Initially, the euro did show promise, but due to the 2010 European crisis and stagnant growth thereafter, the progress stalled.
The Chinese have been trying to position the renminbi as an international currency by giving loans in its currency. The Chinese and Europeans were also the early adopters of the central bank digital currency with one key objective being to increase international transactions in their currencies.
Now, India’s policymakers have joined the fray by positioning the INR as an alternative currency for international transactions. The MoU with the UAE expands the list of countries settling transactions in INR.